The boy who cried ‘tax’

Andrew Blau

March 1st, 1998

This month our Parting Shot comes from Andrew Blau, director of communications policy and practice at the prestigious Benton Foundation, which produced the report “The Learning Connection: Schools in the Information Age.”

Blau responds to the Washington Post’s James K. Glassman and others who have equated telephone company payments into a government-mandated Universal Service Fund with a hidden tax, that phone companies will pass on to consumers in the form of higher residential phone bills. The Universal Service Fund is what will underwrite the eRate discount for schools, among other things.

When Washington Post columnist James K. Glassman saw the commitment to universal service for homes, schools, and libraries, he became the boy who cried “tax” [“A New Tax for the New Year,” Washington Post, Dec. 2, 1997]. The Wall Street Journal fell into line with much the same argument in its editorial “New Phone Tax” [Dec. 9, 1997], and I suspect we will see these same arguments rolled out in local papers across the country.

What Glassman and the Journal ignore is that, first, the cost of universal service is about 2 percent of 1996 industry revenues, a proportion that is expected only to shrink.

Second, passing these costs on to consumers is a choice made by the companies as they consider their market position and competitive pressures, just as they consider competitive pressures when they decide whether or not to raise rates if they face higher labor costs, equipment upgrades, or the costs of expanded lobbying and issue advertising.

Third, charging consumers for regulatory changes that are supposed to benefit the companies is getting to be a pattern: Last year, the Post reported that local telephone companies were filing plans to raise residential rates $120 a year in order to get ready for competition.

But here’s the most basic reason these cries ring a false alarm: These funds don’t disappear into the general treasury  they go to reimburse those telephone companies for the full-market price of providing service to hard-to-serve homes, as well as schools and libraries. Will the same companies that put new charges on our bills give us reductions when they draw that money out of the universal service fund?

Consider the cost of doing nothing. Want to save the $2.2 billion on rural subsidies? Listen to the cries from rural residents (and their senators) when they see their phone bills rise an estimated 200 or 300 percent. Many might discontinue their phone service, resulting in unused (read: not revenue generating) telephone lines  the cost for which telephone companies will hide in your telephone bill. Want to save the $2.25 billion to reduce telecommunications costs for schools and libraries?

Sure, let them pay top dollar for phone and internet connections  that tab will be paid for by local taxpayers anyway. In the end, where’s the savings?

The equivalent of ’50s red-baiting in the ’90s is to cry “tax.” Americans know better.

In research Benton conducted a few years ago, we found that Americans overwhelmingly support programs to ensure connections to schools, libraries, and hospitals (77 percent in favor vs. 18 percent opposed) and that 76 percent of Americans agreed that “Government should require companies that profit from the new technologies to dedicate a part of their resources to supporting community uses and community access to government information.”

The [1996 Telecommunications] Act, with its explicit commitment to universal service and its clear language about wiring classrooms and libraries, reflects a hard-won compromise among many companies, public interest groups, and policy makers. The only thing that deserves the epithet of “taxed” is the logic of those who would shut down the effort to connect schools and libraries  especially those serving America’s poorest children  by misrepresenting the programs created to meet congressional goals.